Hello ARR MB people,
I was rather abrupt (for good reason) with a poster here for suggesting that he holds for the dividend and then sells. Anyone who has followed this stock historically can clearly see that that is a fool's mission...unless you enjoy losing money.
I have explored ARR's history since the advent of monthly distributions and offer the following trading model as the best fit(again historically) which I have found which reaps the greatest reward. This, like all cookbook models, has hard and fast rules. These "rules" may of course be modified (and will be by 95% of those who attempt to employ them). That is why these models fail to produce the same high profits they have done historically...because the rules are not followed, because of simple human nature and the fear and greed commensurate with that same nature and alas the great cookies we have all enjoyed with those chewy centers end up hard, brittle and overcooked, because a loss on a particular cookbook exit date is believed by the trader to be better handled by holding for the dividend and selling post EX...human nature.
So, I realize before even presenting "the model and its rules" that there might only be one or two who profit from the same...so be it. Here they are with the historical results from Dec 16th, 2010 @ PPS 7.54 on the close, your first buy date.
1) Buy on EX +2 on the close
3) Double down on any and all subsequent SPOs during the month up until EX -6
4) Turn the heat down to 350 and flip cookies
5)Remove cookies from oven by Selling all shares on the open of EX-1
26 trading months to date from 12/17/2010
Total net profit(not allowing for bid/ask spread or commissions) $5.23.
Note: no dividends ever collected.
Out of 26 trading months 21 wins, 4 losses and 1 BE
80.7% win, 15.3% loss, 4% BE
Worst month draw-down .33
Best month profit, .64
Average per month net win, .201/month
Average annualized profit, 32%
Compared to buy and hold:
2.69 dividend gain
Minus .45 Capital appreciation loss
Net profit, $2.24, or 13.7% annualized profit
Net difference between making cookies or sitting back and hoping they will turn out well...233%
I am trading this method myself with a test run of 10,000 shares/month. Last month's entry was Jan 15th @ 6.86 buy. Sell was on the open of Feb 12th @ 7.09 for a .23 profit for the month. My entry fortuitously was on EX +2 again this month @ 6.60, but also on EX+1 @ 6.70, since I had to follow rule number 3, above. So my average this month, so far, is 6.65/share.
Most will not be able to enjoy the cookies because they will lack the discipline to follow the rules, for we are by nature, rule breakers...;-) Not our fault, we are human. For those who wish to check or modify my historical findings in order to find a better batter, please do. I would very much enjoy an even more favorable batch....
I am a frequent trader I have a note on my browser, "ARR trades 6.66 to 7.70, extreme 6.41 low 7.80 high. Buy at 6.66 sell at 7.17"
Last time I bought at 6.66 and sold at 7.11. Presently I am holding having bought at 6.66 on Feb 19.
Since it is the same security and you are repurchasing within 30 days( within a week actually) I believe the loss is carried forward and added to your new basis. I trade in a tax sheltered account currently, and am years removed from when I traded in a taxed account so the rules might have changed. Others feel free to set the record straight...;-)
I had interest in the calculations ever since you and Jess were discussing them. I wonder if the gains you mention could be thought of as a "floor" on what's achievable (based on historical data) since you're disciplining the trade at closes and opens. If one could catch the low point on the buy day and high on the exit. the gain is even better. If my numbers are correct, buying low on ex+2 and selling at the high on ex-3, ex-2, or ex-1, one gets on average 6.08, 6.11, and 5.94/yr, respectively (using hayoo data for 8 quarters 2011-12).
ARR is pretty rigid for cyclic trading whereas PSEC is historically much more flexible.
Yes, If you can find a way to catch the low of the day upon entry date and high on exit, that would sweeten the mix. The interesting thing to note though is the EX-1 open almost always is within 2 cents of the day's high. In fact if you use my model's days and look for the low on EX+2 and the high on EX-1 for that two year look back you will add indeed 1.52 to the total. Divide by 48 entry and exits and you find only 3 cents/entry/exit difference.
So where is the big difference between that and your numbers? It is in the SPOs. Those day's account for as much as 70+ cents/entry difference.
Another "rule" I did not want to muddy the basic recipe with was this one:
6) On days where we have a flash crash, defined as the PPS having lost 10% or more(intra-day) from the previous month's EX-1, treat as another SPO.
This would have given you additional buy dates on Nov 14th and 15th, 2012, and Oct 3rd, 4th and 5th, 2011. I might have missed another, but I don't think I have.
Thank you for your interest and good luck!